October 2, 2017

Denver Can Withstand The Next Recession. Probably.

Whispered in discussions of the Denver commercial real estate market, one word comes up fairly often: peak. Or maybe it is a little more than a whisper.

Denver has been on a roll so long that one thing to consider is what happens during the next downturn: a recession, or maybe an economic slowdown caused by events in a volatile world.

Avanti Properties Group Vice President, Investments Ryan Lefkowitz said Denver, by virtue of an economic base bolstered by industrial diversity and job growth, is well-equipped to weather the impacts of a macroeconomic shock or shift.

“That’s not to say that Denver is immune — price adjustments would be expected — but the delta between supply and demand in Denver is significant enough to hold the real estate market in a short-term event. That is, a two- to three-year event.”

JCR Managing Principal Jay Rollins said what happens to the Denver market depends on when the downturn comes, what caused it and how deep it is.

“That said, there is no way to deny that Denver is on full-throttle development binge. To date it has mostly been multifamily, which can always be filled; that’s just a matter of price. The equity partners may not like the rents needed to fill the building, but they can be filled.”

The trickier question is the office space now coming out of the ground in Downtown Denver.

“In office, a developer can’t create demand via price,” he said. “These buildings are looking for all-in rents north of $40 to $45/SF.”

Trouble is Denver historically has not been a high-paying office market, he said. In the past this kind of space went to law firms, oil and gas and wealth advisers.

“Thus, the most ‘at risk’ assets will be the office development. This is not new, it’s always been the case. Typically when development peaks like it is now, it’s a canary in the coal mine, and it will be a race to finish and lease before something happens. As always, there will be winners and losers.”



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